In a CMO structure with several PAC bonds, explain why, when the support bonds are paid off, the structure will be just like a sequential-pay CMO.
Answer to relevant QuestionsSuppose that for the first four years of a CMO, prepayments are well within the initial PAC collar. What will happen to the effective upper collar? Answer the below questions. (a) What type of prepayment protection is afforded a TAC bond? (b) What type of prepayment protection is afforded a reverse TAC bond? (c) What type of prepayment protection is afforded a VADM? Suppose that a tranche from which an inverse floater is created has an average life of five years. What will the average life of the inverse floaterbe? What is meant by the prospectus prepayment curve? Answer the below questions. a. What is an option ARM loan? b. Why is it unlikely that this loan type will be originated in the future?
Post your question